Thursday, October 11, 2012

Supreme Court Denies Law Firms' Amicus Request in Le-Nature's Suit

The state Supreme Court has denied a group of law firms’ request to file an amicus brief in support of K&L Gates’ appeal in a $500 million lawsuit against it by the Le-Nature’s trustee.

The 14 law firms had filed an amicus brief when K&L Gates asked the Pennsylvania Superior Court to reconsider its decision to reinstate trustee Mark Kirschner’s malpractice suit against K&L Gates. That suit, seeking $500 million in damages for the law firm’s alleged failure to detect fraud at Le-Nature’s three years before that fraud bankrupted the beverage maker, was thrown out by an Allegheny County Court of Common Pleas judge.

When the Superior Court denied the motion for reconsideration, K&L Gates appealed to the Pennsylvania Supreme Court. While the Supreme Court has denied the law firms’ request to file an amicus brief, it has not yet ruled on K&L Gates’ allocatur petition.

K&L Gates was hired by a special committee of the Le-Nature’s board in 2003 to investigate whether there was fraudulent activity by certain of the company’s executives. K&L Gates found no evidence of fraud, but three years later the company went into bankruptcy and its president was later convicted of fraudulent financial practices and sentenced to more than 20 years in prison.

K&L Gates and accounting firm Pascarella & Wiker had argued the firms only had a duty to the special committee of Le-Nature's that hired them in 2003, and not to a trustee of the now-bankrupt company. Allegheny County Common Pleas Senior Judge R. Stanton Wettick Jr. agreed, finding they had no obligation beyond the special committee and that the trustee could not claim damages for deepening insolvency of the company between the 2003 internal investigation and the 2006 collapse of the company.

But Superior Court Judge John L. Musmanno said in his opinion that the special committee had a duty to the company and K&L Gates was providing legal services to Le-Nature's through the special committee.

"K&L Gates was retained to investigate the exact type of injury being inflicted upon Le-Nature's," Musmanno said. "By negligently conducting its investigation, K&L Gates affirmatively caused harm to Le-Nature's by concealing the looting of the company and wrongdoing by [former CEO Gregory J.] Podlucky, and affirmatively representing that no evidence of fraud or misconduct existed."

The amici law firms had argued in their brief to the Superior Court that “for the first time,” the court ruled “an implied attorney-client relationship could be inferred from circumstantial evidence even where two sophisticated parties have entered into a representation agreement that expressly disavows that such a relationship exists.” They argued the engagement letter between K&L Gates and the special committee expressly disavowed any relationship between the law firm and Le-Nature’s.